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Solutions

Solutions

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03/18/2014

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CHAPTER 9
DISCUSSION QUESTIONS
1.

Unless moving expenses are involved, Lyle\u2019s expenses will be deductionsfrom AGI. Therefore, the deduction would not be available if the standard deduction is claimed. Also, Lyle\u2019s expenses will be subject to the 2%-of-AGI limitation. Lyle\u2019s expenses would be reported on Form 2106 and transferred to Schedule A. Joan\u2019s expenses are deductionsfor AGI and should be reported on Schedule C. Lyle will be subject to FICA, whereas Joan is liable for the self-employment tax. pp. 9-3 and 9-29

2.

Each stylist should pay a set rental for the use of the facility. Except for controlling the hours when the salon will be open, Bernard should allow each stylist to determine his or her own working hours. Each stylist should handle customer appointment and billing functions. To the extent feasible, stylists should provide their own tools and supplies. Preferably, each stylist should have a separate telephone. Except in the interest of public health or safety, Bernard should exercise no control over the clientele of his stylists. p. 9-3

3.
Alexis can claim the mileage from her home to the client locations. The mileage to and
from the university qualifies as an education expense. p. 9-15 and Examples 7 and 27
4.

In terms of income derived, the newspaper column he writes predominates. Since the column is written at home, this would be considered his tax home. In this sense, the trips to the university can be regarded as going to a second job. Consequently, the use of his car for this purpose should be deductible. pp. 9-5, 9-8, and Example 5

5.

From the facts given, it appears that Emma hasnever claimed any deduction for the business use of the auto. If she has already filed for year 2003, an amended return claiming the deduction is appropriate. Due to an absence of records, Emma cannot use the operating cost method of determining the deduction. Consequently, the automatic mileage method should be chosen. Emma can prove the miles driven and the percentage of business use. pp. 9-6 and 9-7

6.

Tyler\u2019s deductible expenses include transportation and meals and lodging for the entire trip. Expenses attributable to the Cub\u2019s game and the museum trips are personal and are not deductible. Because the trip is solely for business and business was conducted on Friday and Monday, the weekend living expenses are regarded as business expenses. p. 9-10 and Examples 10 and 20

7.

The main issue to be resolved is the location of Dr. Werner\u2019s tax home. Presuming his salary to be more than modest, the tax home probably is the situs of Pelican University. Thus, Dr. Werner is in travel status when he conducts continuing education programs or testifies while out of town. p. 9-8

8.

Expenses incurred during a temporary assignment will be treated as if the taxpayer is in travel status, as the tax home does not change. If, however, the assignment is indefinite, the tax home changes to the location of the new assignment. If the period of assignment exceeds one year, it is not temporary. p. 9-8 and Examples 10 and 11

9.
a.
A taxpayer is never away from home if his or her job is the tax home. Such
would be the case of the itinerant worker or trucker who lives where they work.
b.
If the taxpayer is never away from home, then all living expenses, such as meals
and lodging, become personal and are nondeductible.
Deductions: Employee and Self-Employed-Related Expenses
9-5
c.

The key to being away from home for tax purposes is the duplication of living expenses. For example, the truck driver who otherwise sleeps at home will be duplicating lodging expense when a motel room is rented while on the road.

p. 9-8 and Example 12
10.

Dr. Hampton\u2019s expenses clearly are deductible, while those relating to Mrs. Hampton are not. Although she is employed by the clinic, the content of the seminar probably is not relevant enough to her job assignment. Contrast Examples 16 and 17. p. 9-9

11.
If obtaining the education does not qualify as a deduction, related travel expenses are not
allowed. Thus, none of these expenses are deductible. p. 9-9 and Example 18
12.

Travel days count as business days. The weekend counts as business days if the prior Friday and subsequent Monday are business days. The same holds true for a legal holiday. By utilizing these guidelines, Marge can enhance her leisure time while maximizing her deductions. p. 9-10

13.

Quincy did not satisfy the 39-week time requirement. So he has two choices. First, he may increase his income for 2006 by the amount of moving expenses deducted on the 2005 tax return. Second, he can file an amended return for 2005 and recompute his tax after deleting the moving expenses deduction. p. 9-12

14.

First, storage expenses qualify for the deduction for expatriates. Second, the time test does not apply when the expatriate returns to the U.S. to retire.Global Tax Issues on p. 9-13.

15.
a.

Nondeductible expenses would include those that are not job related (e.g., an accountant\u2019s expenses incurred in obtaining a law degree) or those involved in acquiring a basic skill (e.g., cost to an accountant of taking a review course for the CPA exam). pp. 9-13 and 9-14

b.

If the expenditure falls under \u00a7 222, it is classified as a deductionfor AGI. Section 222 includes only qualified tuition and related expenses. pp. 9-15 and 9-16

c.
All other education expenses (i.e., those not disallowed in part a. or included in
part b. above) are treated as deductionsfrom AGI. pp. 9-15 and 9-28
16.
a.
One of the advantages of \u00a7 222 is that the education involved need not be job
related.
b.
As a deductionfor AGI results, the 2%-of-AGI limitation is not applicable.
c.
The AGI limitation and the related partial or complete phaseout of the deduction
depends on the year involved and the filing status of the taxpayer.
d.
Section 222 is not available when married taxpayers file separate returns.
p. 9-16 and Table 9-1
17.
Because business entertainment involves an element of pleasure, such entertainment
should not be completely deductible.
9-6
2006 Comprehensive Volume/Solutions
a.

The original scapegoat was the \u201cthree-martini lunch.\u201d The cutback adjustment does not preclude any deduction, but merely reduces the amount that can be deducted.

b.

The cutback adjustment is further reduced for taxpayers whose employment is regulated by the U.S. Department of Transportation. This group is unlikely to use business meals for pleasurable purposes.

p. 9-17
18.
a.
The employee is subject to the 50% cutback adjustment. p. 9-17 and Example 29
b.
The employer is subject to the 50% cutback adjustment. p. 9-17 and Example 29
a.
Neither is subject to the cutback adjustment. The award is compensation to the
employee and is fully deductible by the employer. p. 9-18 and Example 31
d.

No one is subject to the cutback adjustment. The subsidized eating facility provision represents one of the exceptions to the cutback adjustment rule. p. 9- 18 and Example 32

e.
Employer paid recreational activities are not subject to the cutback adjustment.
p. 9-18
f.
De minimis fringe benefits are not subject to the cutback adjustment. p. 9-18 and
Example 33
19.

The membership dues to the club are not deductible nor are any of the expenses relating to personal use deductible. The business lunches qualify if properly substantiated. The expenses for the golfing activities may be difficult to deduct in view of Madison\u2019s lack of participation. Like the Christmas party, however, the expenses could qualify if preceded or followed by a bona fide business discussion (or presentation). Neither the golf course nor the Christmas party can be regarded as a clear business setting. pp. 9-19, 9-20, and Example 36

20.

Since the tickets were purchased at the last minute, a premium was probably paid. Only the cost of regular tickets (as measured by their face value) is deductible. Any such deduction is subject to the 50% cutback rule.

If the entertainment is of the \u201cassociated with\u201d variety, attendance at the game must be preceded or followed by a bona fide business discussion. In addition, a partner or an employee of the law firm must be present during the game. p. 9-20 and Example 37

21.
a.

An employee who claims the standard deduction cannot benefit from an office in the home deduction since it is an itemized deduction. A self-employed taxpayer, however, can benefit since a deductionfor AGI now is involved.

b.
The office must be usedexclusively for business. Otherwise the home office is
not a qualified home office.
c.
Excess expenses can be carried over to future years.

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